Dec. 21 (Bloomberg) -- Siemens AG, Europe’s largest
engineering company, plans to cut as many as 1,600 jobs at its
health-care division and will scale back the business after
falling behind competitors including Roche Holding AG.

The planned cuts amount to as much as 8 percent of workers
at the diagnostics subsidiary, said Michael Sen, the chief
financial officer of the health-care operations. Another 400
jobs will go as Siemens stops making linear accelerators that
create radiation for cancer treatment.

Chief Executive Officer Peter Loescher is embarking on the
unit’s second major overhaul in less than two years, after
Siemens spent more than 10 billion euros ($13 billion) since
2006 bolstering the diagnostics business. Order intake and sales
at the health-care unit failed to grow in the most recent
quarter, and profitability at the diagnostics business has
slumped to less than half the rate two years earlier.

“We want to become leaner, while investing in a new
platform of products,” Sen said in the interview in Erlangen,
southern Germany, on Dec. 15. “In diagnostics, we don’t want to
remain at the level of profitability that we closed at last
year.”

Diagnostics, which accounted for 29 percent of Siemens
health care’s 12.46 billion euros in sales in fiscal 2011,
posted an operating margin of 6.7 percent in the most recent
quarter. That’s down from 14.7 percent in the first quarter of
2010. The division, which sells equipment to test body fluids
for diseases, employs almost 15,000 people globally.

Shifting Production

The focus will be on reducing costs and shifting production
to lower-cost countries, a strategy that will prevent the unit
for some more years from growing at the speed of the market,
estimated at 3 percent to 5 percent, Sen said.

“We need to manage expectations,” he said. “It won’t
happen in 2012. Diagnostics is not a quick fix.”

Siemens built the business by purchasing Dade Behring
Holdings Inc., Bayer AG’s diagnostics unit and Diagnostics
Products Corp. between 2006 and 2007 as it sought to narrow the
gap with General Electric Co. Siemens wrote down goodwill
accumulated with the acquisitions by 1.15 billion euros in
November last year. Goodwill at diagnostics remains at 4.78
billion euros, or 30 percent of total at 15.71 billion euros.

Another focus will be increasing research and development,
Sen said. Siemens spent 3.93 billion euros, or 5.3 percent of
sales, on R&D last year, and about 1.1 billion euros of that, or
8.8 percent of sales, in health care.

“This is an investment program, not a restructuring
program,” Sen said. “The fundamental trends are intact. We
just want to approach challenges more aggressively”

No More Accelerators

The company will phase out linear accelerators, while it
will continue to serve its equipment in operation, Sen said in
the interview. The company won’t sell the installed base, he
said. The move will result in almost 400 job cuts in Germany
over two years, the majority of which will be in Erlangen.

The company said in November that an overhaul will cost
about 300 million euros in the fiscal year that started Oct. 1.
Sen said while the program will run for two years, it won’t
weigh on earnings next year. Siemens stopped commercially
offering particle-therapy systems earlier this year.

“From today’s perspective I see no further costs next
year,” 43 year-old Sen said.

Sen, a Siemens employee for 16 years, took over financial
responsibility for the medical units at the end of 2008, after
heading investor relations and working on corporate strategy.
Hermann Requardt assumed leadership of the division, previously
among Siemens’s top performing areas, in 2008.

‘Poor Execution’

Requardt initially coupled the job with his role as chief
technology officer for Siemens, a position he handed over to
Klaus Helmrich earlier this year. A lack of management focus,
and “poor execution” integrating the purchases resulted in a
loss of more than 6 percentage points of market share in the
four years following the acquisitions, with Roche overtaking
Siemens for the top spot in the industry, Morgan Stanley analyst
Ben Uglow estimated in a Nov. 28 note to clients.

“We may have been focused internally too much, while our
competition was out in the market,” Sen said.

Siemens says its imaging business, which makes scanners to
detect cancer and other diseases, has defended its top spot in
magnetic resonance imaging and angiographic systems. In computed
tomography, Siemens edged past GE, and Sen said more than half
of its scanners are now manufactured in China.

Increasing revenue and profit with ultrasound equipment has
come into focus, and the business will push into “many new
areas” of application, Sen said. Siemens separated the business
from its larger imaging modalities in 2010 and bundled it with
x-ray offering to better develop cheaper models and expand into
emerging markets.

Siemens’s health care operations had 51,000 employees as of
Sept. 30, making it the smallest of Siemens’s four so-called
sectors. Siemens last year generated 35 percent of health-care
sales in the U.S., its largest market, and 22 percent in Asia.
The installed base of imaging equipment in China stands at more
than 4,000 units, Siemens said in June.